8. Notes Payable

Aqua Metals Reno, Inc. (“AMR”), a subsidiary of Aqua Metals Inc., entered into a $10,000,000 Loan Agreement with Green Bank on November 3, 2015. The term of the loan is twenty-one years. During the first twelve months, only interest was payable and thereafter monthly payments of interest and principal are due. The interest rate adjusts on the first day of each calendar quarter to the greater of six percent (6%) or two percent (2%) per annum above the minimum prime lending rate charged by large U.S. money center commercial banks as published in the Wall Street Journal. The terms of the Loan Agreement contain various affirmative and negative covenants. Among them, AMR must maintain a minimum debt service coverage ratio of 1.25 to 1.0 (beginning with the twelve-month period ending March 31, 2017), a maximum debt-to-net worth ratio of 1.0 to 1.0 and a minimum current ratio of 1.5 to 1.0. AMR was in compliance with all but the minimum debt service coverage ratio covenant as of and for each of the calendar quarters in the period March 31, 2017 through September 30, 2020. AMR has received a waiver for the minimum debt service coverage ratio covenant for each of the aforementioned calendar quarters. The net proceeds of the loan were used for the construction of the Company’s lead acid battery recycling operation in McCarran, Nevada. Collateral for this loan is AMR’s accounts receivable, goods, equipment, fixtures, inventory, land, building accessions and a certificate of deposit in the amount of $1,000,000. The certificate of deposit is reported in "Other Assets" in the condensed consolidated balance sheet.

The loan is guaranteed by the United States Department of Agriculture Rural Development (“USDA”), in the amount of 90% of the principal amount of the loan. The Company paid a guarantee fee to the USDA in the amount of $270,000 at the time of closing and is required to pay to the USDA an annual fee in the amount of 0.50% of the guaranteed portion of the outstanding principal balance of the loan as of December 31 of each year.

The costs associated with obtaining the Green Bank loan were recorded as a reduction to the carrying amount of the note and are being amortized as interest expense within the condensed consolidated statements of operations over the twenty-one year life of the loan.

On March 25, 2020, AMR entered into a Memorandum of Agreement ("MOA") with Veritex Community Bank (“Veritex”), the successor in interest to Green Bank, regarding the Loan Agreement. Pursuant to the MOA, the parties have agreed to the allocation of insurance proceeds, resulting from the fire, and proceeds of any sales of collateral secured by the Loan Agreement. The proceeds will be allocated between Veritex and AMR as indicated by the MOA. At such time that Veritex has received payments from insurance proceeds or asset sales equaling the amount outstanding under the Loan Agreement, the Loan Agreement will be retired and all further proceeds will accrue to AMR exclusively. Except as set forth in the MOA, all terms and conditions of the Loan Agreement remain in place and unchanged. Insurance proceeds allocated as of   September 30, 2020 to the payoff of the note total approximately $7.6 million.

On May 7, 2020, the Company received loan proceeds in the amount of approximately $332,000 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses. The loans and accrued interest are forgivable if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during a prescribed period.

The unforgiven portion of the PPP loans are now payable over five years at an interest rate of 1%, with a deferral of payments until July of 2021. The Company intends to use the loan proceeds for purposes consistent with the PPP. The Company plans to apply for PPP loan forgiveness and believes its use of the loan proceeds will meet the conditions for forgiveness of the loans. However, there is no assurance that the Company will be eligible for forgiveness of the loans, in whole or in part.

Notes payable is comprised of the following (in thousands):